PM launches Aadhaar Pay, will it kill the card and PoS?

It seems that PM Narendra Modi has launched a surgical strike, through Aadhaar Pay, targeted at making digital payments more seamless for the country.

On the occasion of the 126^th birth anniversary of Bhim Rao Ambedkar, Prime Minister Narendra Modi launched the BHIM Aadhaar-based mobile app (Aadhaar Pay or BHIM Aadhaar), which will allow consumers to pay through their biometric data, linked to their Aadhaar.

In the last week of December, PM Narendra Modi rolled out the Bharat Interface for Money (BHIM) app to enable fast, secure, and reliable cashless payments through mobile phones. The Aadhaar-based payment will sit on top of the BHIM app. On receiving the app update, the business owner has to declare himself as a merchant, in order to start using the service.

According to Minister of Information Technology Ravi Shankar Prasad, who was present at the event, BHIM, at present, has close to two crore people on the platform, with transactions worth Rs 830 crore facilitated on it. He added,

“Aadhaar Pay says that the customer doesn’t need to have a smartphone. It will be related to your Aadhaar, and the retailer will have a smartphone.”

He stated that of the 125 crore (1.25 billion) population in the country, 113 crore (1.13 billion) citizens are on Aadhaar.

Speaking at the launch, the PM said,

“The world doesn’t have the kind of technology we will be using through BHIM Aadhaar. If you don’t have a mobile number, the merchant will put an instrument (biometric scanner) and it will automatically debit the amount from your bank account.”

But the million dollar question is - how does it work? 

• Using this Aadhaar payment app, merchants can accept 'card' payments that will be cashless, cardless, and pinless.
• To accept payments, a merchant downloads and registers themselves on the app through their Aadhaar number, with the registration process accompanied by the authorisation of the finger print of the merchant.
• The app is linked to a biometric scanner instrument to validate the customer’s biometrics.
• During the payment process, the customer will be required to input their Aadhaar number, followed by selecting their respective bank. The transaction is then validated through the scan of the consumer’s biometrics, which acts as their password or pin.
• The amount gets automatically deducted from your Aadhaar-linked bank account and credited to the merchant’s Aadhaar-linked bank account.

The initiative essentially helps the government track the transaction history of individuals, and inherently, curb black money by bringing in financial transparency to the system.

As a part of the announcement, PM Modi also introduced a referral programme and cashback scheme for Aadhaar Pay, for which the government has set aside a budget of Rs 495 crore for six months. The schemes are expected to run till October 14, according to the Prime Minister.

The PM explained that a consumer is entitled to Rs 10 every time they help onboard a merchant onto the BHIM App, and gets him/her to take three transactions through the medium. On the other hand, the successfully omboarded merchant is incentivised with Rs 25 (for onboarding the application), paid by the government to his/her bank account.

Wiping out PoS and cards?

In 2012, the RBI had capped the MDR for debit card transactions up to Rs 2,000 at 0.75 percent (of the transaction value) and at one percent for all transactions above Rs 2,000.

In December 2016, the RBI had reduced these rates, capping MDR for transaction value up to Rs 1,000 at 0.25 percent and for transaction value between Rs 1,000 and Rs 2,000 at 0.50 percent of the transaction value.

Moreover, for credit and premium cards, the MDR can flair as high as two percent of the entire transaction size. While not providing much clarity on the current rates, NPCI had waived the switching fees (or transactions charges) for RuPay Card transactions (both for PoS and e-commerce), IMPS, UPI, National Unified USSD Platform (NUUP) and AEPS (on which Aadhaar Pay rides), with effect from January 1 to March 31, 2017.

The entire setup reduces the cost dramatically of accepting digital payments in the country. On an average, the cost of buying a PoS machine is Rs 8,000 in the country, with a monthly cost levied by banks for using the payment network. On the other hand, the cost of a biometric thumb scanner is only Rs 2,000 in the country. In spite of this, the government is still hooked on to doubling the Point of Sale (PoS) acceptance infrastructure in the country.

If played on by the masses, Aadhaar Pay can even hit the recent strategy of BharatQR, which involves paying through scanning a merchant code. Alas! This is based on the argument that Aadhaar Pay eliminates the use of even a smartphone from the customer’s end.